Posts filed under ‘Business Cases’

Starbucks Corp. unveiled an alliance with India’s flagship conglomerate—a move designed to pave the way for retail locations here and to sell more Indian coffee world-wide. India remains one of the big untapped markets for the Seattle-based coffee and food company. Chairman Howard Schultz said in an interview from Mumbai that India could one day rival China, where the company recently announced plans to more than triple the number of outlets to about 1,500 in five years. India is “as large an opportunity as there exists in the world, coupled with China,” he said.

The alliance is with India’s Tata Group, a wide-ranging company that owns everything from Jaguar cars to steel mills and tea plantations. Its Tata Coffee Ltd. unit owns the Eight O’Clock Coffee Co. in the U.S. and is a big coffee producer in India. The country, though known as a land of tea, is also a major coffee exporter—the fifth-largest in the world, according to the U.S. Department of Agriculture.

Mr. Schultz said one of the reasons for the alliance is to raise the profile and use of Indian premium Arabica beans in Starbucks stores elsewhere. The first phase of the alliance involves sourcing and roasting beans. Read More

Western outfits looking to sell products should forget “glocalization” and embrace reverse innovation

After this month’s midterm election results, which showed voters single-mindedly concerned about jobs and the economy, President Obama quickly rebranded his trip to India and other Asian countries as a trade mission. The goal of the trip, he said, was to stimulate overseas demand for American goods and services.

It’s certainly true that, for many U.S. businesses, emerging nations present rich growth opportunities. In China, India, and elsewhere in the developing world, rising prosperity is expanding the market for consumer goods from high-tech razors to high-tech cars. But the traditional way of serving those markets suffers from flaws that eventually limit the growth potential.

Typically, multinational companies create stripped-down versions of products developed for Western consumers. They then offer these products in the developing world at a reduced price. To do this requires removing certain premium features or bells and whistles, and perhaps substituting lower-cost materials. Even so, the prices such products command are often unaffordable by all but a small percentage of people at the top of the local markets’ income pyramid.

In this model, innovation flows in only one direction: downhill, from the headquarters of the multinational corporation out into the world. The same basic products made for the developed world are modified for poor-world consumption, mainly through de-featuring and substitution.

“Glocalization” Fizzles
This strategy is called “glocalization.” But while the word “local” is embedded in the name, in truth there is very little locally relevant insight reflected in the design of glocalized products. Thus, after an initial flurry of sales made largely on the cachet of the multinational’s global brand, the approach fizzles. As one Indian executive told us: “Emerging nations used to aspire to have rich-world products. Now they want rich-world quality in their own products.”

In the end, businesses that practice only glocalization will fail to exploit the full emerging-market opportunity—to the detriment of their bottom lines and the economy as a whole. Read More

China’s innovation progress, including its new supercomputer, the world’s fastest, is a benefit—not a threat—to the U.S. Pro or con?

Pro: A We-Are-the-World Breakthrough
by Henry Chesbrough, Haas School of Business, UC Berkeley

The advent of China’s lightning-fast supercomputer demonstrates that Chinese scientists and engineers are taking their place on the world stage, and that the country will be an increasingly important source of new ideas and technology for many years to come.

This is good news. China’s success does not come at our expense. The creation of knowledge is not a zero-sum game. New discoveries in one place lead to other discoveries in other places, and we all benefit as a result. More investment in science and technology in China could lead to new breakthroughs in the U.S. in creating new materials, treating diseases, and developing more energy-efficient products and cleaner energy technologies.

But the biggest opportunity for the U.S. comes from how we respond to the growing technological capability of China. In a word, our response needs to be “open.” Many of my students are from China, and they are as hard-working and entrepreneurial as my students from Silicon Valley. They are eager to work for leading companies around the globe. And they will move from one company to another if they see a better opportunity. So it behooves U.S. companies to create those opportunities. It is also wise for U.S. firms to increase their activities in China, which is already the world’s second-largest economy and will likely be the largest fairly soon. Read More

Con: Spotlight on U.S. Vulnerability
by John Kao, Institute for Large Scale Innovation

I surprise myself by occupying the con side of this debate since in general I believe a world richer in innovation capacity is a better and potentially more peaceful world.

I also believe that China’s time has come in humanity’s race to the innovation high ground. The benefits of peace for a country that has seen precious little of it, and the visible gains that have resulted in terms of social and economic development, are rewards richly deserved and merit applause.

At the same time, I worry about America’s loss of leadership in strategic industries—alternative energy, materials science, and now supercomputing. In particular, I am concerned from a national security perspective about the destabilizing effect of massive new waves of innovation that we don’t control or in some cases don’t even understand.

If history holds any lessons for us, it is that great powers rise and fall. And the subtext of these transitions often translates into object lessons in the dangers of incumbency and the disruptive power of innovation. Genghis Khan and the Mongols prevailed militarily because of the stirrup. Britain applied lessons learned from the Industrial Revolution to the organization of war. And we are fresh from an American century inextricably woven together with the Atomic Age and the kind of cyberwarfare enabled by digital technology. Each wave of innovation rode its own wave of economic surplus and societal momentum.

Having your laptop searched or detained by Customs on your way back from a business trip would be a nightmare for most business people. This scenario is quite possible under new governmental policies. In fact, it is becoming so frequent that last August, Customs and Border Protection (“CBP”) and Immigration and Customs Enforcement (“ICE”) both issued their respective new policies on border searches of electronic devices. It was a coordinated effort of CBP and ICE to update and harmonize their border policies to detect an array of illegal activities, including terrorism, cash smuggling, contraband, child pornography, copyright, and export control violations. Link

The earthquake that hit Haiti on Tuesday measured 7.3 on the Richter scale and has had an immediate and devastating effect on the 2.2 million people who live in the country’s West Province. There’s no doubt that the disaster will be met with a swift outpouring of support from around the globe, with aid coming from governments and individuals alike. But that good will won’t dispel the quake’s lasting economic impact (S. Morgan, SmartMoney, January 13, 2010).

BEIJING—Baidu Inc., owner of the most popular Web site in China, isn’t known for ground-breaking innovation. From the Google-esque look of Baidu.com’s main page to its Wikipedia-like encyclopedia to a question-and-answer service that’s similar to Yahoo Answers, the Chinese Internet search company has long been tarred by critics as unoriginal.

But Baidu also is an example of how many Chinese technology companies manage to outfox foreign competitors by tailoring existing technologies to China’s growing and fast-changing market. While that may not earn them respect as global innovators, their understanding of the Chinese consumer has allowed many of them to beat bigger foreign rivals at their own game in China, home to the world’s largest number of Internet users.

The so-called Taobao addicts are helping to pick up the slack in a sluggish economy. “I can’t live without Taobao,” said Zhang Kangni, a graduate student in Shanghai. “First, it’s cheaper. I found a dress at a store in Shanghai. It’s a Hong Kong brand that sells for $175. I found it on Taobao for $33.”

But skeptics ask: Can Taobao actually make a profit and emerge as a true Web powerhouse?

The company is not publicly traded and therefore does not disclose financial information, but listings are free on Taobao and the company makes no money from online transactions. Almost all Taobao’s $200 million in revenue comes from advertising, which the company says covers virtually all its operational costs. (By DAVID BARBOZA, The New York Times, August 9, 2009 )